All Forum Posts by: Michael S.

I was referring to a cash out refi not a HELOC. The money to cover the $200k would be coming from the new buyer. There would be a 50k surplus from the selling transaction after the 200k loan is paid off and I would still have my 50k from the refi.

So the original loan amount is $150000, a new loan (through refinancing) is taken out for $200,000 (80% of $250,000 the new appraised value). So the investor gets $50,000 tax free from the refinance. When the property is sold for $250000 the investor will have to pay off the new loan of $200,000. The difference will be $50,000 but the investor can clam $20000 in renovation costs against that $50000 gain. So in the end the investor will pay gains tax on $30000. 

I hope this clears it up a little but this is a rather complicated scenario. 

There are several posts on this topic but I am still struggling with a clear understanding. 

From what I have read on BP, it seems like there is no taxes that will need to be paid when one does a cash out refinance. If this is the case then why don't investors (especially flippers) use this as a tax strategy to avoid any gains tax on the property. What I mean by that is; before someone sells a property they refi to the max allowed LTV (say 80%) and then sell the property after the refinance. If done correctly the refi closing costs would be less than the gains taxes they would need to pay for the sale.

Ex.

Purchase price $150,000, renovation costs $20,000, ARV $250,000

After renovation the investor would refi to 80% LTV (or the maximum possible amount). In this case they could pull out $50,000 minus say $3000 in closing costs.

After the refi the house would be sold for a gain of only $30,000 instead of $80,000.

Could this be used as a valid tax strategy?

Hello everyone,

I recently, possibly prematurely, left my job as an Engineer to peruse my growing passion of real estate. There is something about being in a 8'x 8' room for 8-10 hours a day that made me feel like I was slowly dying or that I was a criminal (at least my cell had windows). I know a lot of people who don't enjoy their jobs and hesitate to take the leap. Its never a great time to leave a job so why not now? I decided to take the leap and am ready to face the consequences and reap the rewards. Hopefully I can report back soon saying something like, "This was the best decision I ever made!" I guess you will have to stay tuned. 

I have been studying the market in the Portland, ME area for the last few years and think I know it pretty well. I am finishing up my first live in flip that went extremely well. I had a lot of fun with it and it looks like I might make a little money in the end (can't be said for a lot of first time flips). I am currently studying to get my real estate agent license for all sorts of reasons. I hope to continue flipping houses in the area and get into buy and hold properties   With the quick returns from the flips. 

I hope to learn from everyone on here and help out in anyway I can. 

Michael